September 30, 2022
  • September 30, 2022

How much does life insurance cost? – Forbes UK Advisor

By on August 10, 2022 0

Life insurance can cost as little as £5 a month but, like any type of insurance policy, the cost of cover depends on how likely you are to make a claim. The more likely a loss is, the higher the premiums.

With life insurance, it is primarily your age, health, occupation and lifestyle that determine your level of risk and the cost of your premiums. The type of policy you purchase and how you choose to make payments also have an effect on how much you will pay.

Here’s an overview of how life insurance pricing works.

Types of life insurance contract

The cost of life insurance depends, in part, on the type of policy you have.

First, you must choose between term life insurance, which reimburses you if you die within a certain number of years, and whole life insurance, which reimburses you when you die.

The latter is more expensive but guaranteed to be paid out in time, while term life insurance is cheaper because it only has to be paid out if you die during its term. Whole life insurance is often purchased with tax and estate planning in mind. Term insurance is a pure game of “protection” designed to provide funds for your dependents if you die prematurely.

When it comes to term coverage, you can choose from three types of policies: decreasing duration, increasing duration and level duration.

With a decreasing duration policy, the payment that your loved ones would receive in the event of a claim decreases over time. The idea is that the payment amount decreases with your mortgage balance as you pay it off.

The reduced amount of coverage you pay compared to other types of policies makes decreasing term a cheaper option.

As the name suggests, increasing term insurance does the opposite of its decreasing term cousin, providing a payment that increases over time to account for inflation and help meet your family’s growing commitments.

This could include expenses such as tuition fees. With an increasing term policy, your premiums are reviewable and can be increased during the term of the policy.

Level term life insurance offers the same potential payout for the life of the policy, regardless of when it is surrendered. This figure therefore does not take inflation into account, so the sum assured is likely to be worth much less in real terms after, say, 25 years of rising prices.

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Adapt your coverage to your needs and offer financial security to your loved ones

Some policies are renewable, meaning you can renew them at the end of their original term. Others are revisable, meaning your premiums and payments may be revised intermittently by your insurer.

Finally, some policies are convertible, meaning term life insurance policies that can be converted into whole life insurance policies.

If you have a partner, you also have the option of taking out a single policy each or a joint policy covering both of you.

A joint policy may be more cost-effective, but you’ll need to consider whether you need a first-to-die policy, which pays out when one of you dies – thus ending the policy – ​​or a second-to-die policy , which only pays after you are both dead.

A first-to-die policy is likely to be cheaper, but remember that the surviving policyholder will be left without cover after payment, and will be older at that time, making a new policy more expensive.

Your situation

Two policyholders with the same type of policy will not pay the same premiums, as much of the cost is based on personal circumstances.

For example, someone who takes out a policy in their 50s is likely to pay more than someone in their 20s because they are statistically more likely to develop health problems. By the same logic, someone in good health is likely to have cheaper coverage than someone with existing health conditions.

Lifestyle is also a factor. Those who smoke and/or drink an above average amount of alcohol are likely to pay more for coverage than someone who does not smoke or drink, as they are more likely to develop health problems.

What you do for work can also impact your premiums. Some jobs are inherently more risky than others. A firefighter or policeman, for example, might have to pay more for coverage than a cleaner or receptionist.

Life insurers may even take your height and weight into account when calculating your premiums, using them to calculate your body mass index (BMI).

Last but not least, the sum insured has a significant impact on your premiums. Generally speaking, the larger the payment you would need to cover your commitments, such as your mortgage, the higher the premiums you can expect to pay.

Taken together, these attributes create a risk profile that the insurer will use to calculate how much to charge you for life insurance.

Get the best price

A price comparison service is the easiest way to see which providers offer the best coverage. Our life insurance comparison tool will not only show you the amount of coverage, but also what’s included in the policy, helping you balance protection and price.

You’ll also be able to weigh the costs of optional extras such as income protection and critical illness cover, which you can read more about here.

Finally, we’ve ranked what we consider to be the top five life insurance providers based on typical premiums for a level term insurance policy, percentage of claims paid, and customer service scores. Click here to read more.

Compare life insurance quotes

Adapt your coverage to your needs and offer financial security to your loved ones